Cameco downgraded at JPMorgan, but others see opportunity

Cameco Corp. and Uranium One Inc. were cut to neutral from overweight at JPMorgan in anticipation of uranium prices remaining below US$50 per pound for the next year or so.

Uranium spot prices have continued to be weak as Japan delays bringing more nuclear reactors online.

While analyst Tyler Langton doesn’t see much more downside to either uranium spot prices or Cameco shares, he expects the stock will trade sideways until uranium prices start to see material gains. He doesn’t think that will happen until 2014.

Mr. Langton’s December 2013 target price for Cameco was reduced to $22 from $24 as a result.

On Oct. 31, Cameco released third quarter results that came in weaker than expected due to low uranium sales.

While the company maintained its full-year guidance, it slashed its long-term production guidance to 36 million pounds per year from a previous target of 40 million.

The stock has fallen nearly 8% since, closing at $17.87 in Toronto on Wednesday.

Raymond James analyst David Sadowski recommends buying on the weakness, despite cutting his price target on the stock to $25 from $26.

“Given an increased focus on its world-class Canadian assets; decreased execution risk; inevitable clarity on 3Q12E Japanese restarts and ensuing upward spot price pressure, we highlight share price weakness as an excellent opportunity for investors with a >6 month horizon to add to positions,” he told clients.

Cameco also announced a $500-million debenture offering, with the proceeds to be used to strengthen its capital position and enhance financial flexibility to support its planned expansion.

Cameco has been on the acquisition trail in recent months with purchases of the Yeelirrie uranium project in Australia from BHP Billiton and AREVA’s 27.94% stake in the Millennium project in the Athabasca Basin.

He noted that Cameco has adjacent in-situ recovery uranium projects near Uranerz’ Nichols Ranch project in Wyoming, and Cameco has announced that it is working to expand production in the region.

“At current levels, making a bid for Uranerz may be an opportunistic (and discounted) approach for exposure to an asset that will be in production by next quarter and ramping up to over 1 million lbs U3O8 by 2015/2016,” Mr. Chang told clients.

He also noted that Cameco currently has a fair amount of financial flexibility given its existing $1.75-billion revolving credit facility.

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